Fee for technical services may be taxable in India even if completely rendered outside India

Facts

• The assessee, an Indian company entered into an agreement with a Chinese company for availing bauxite testing services.
• The bauxite samples received from the Indian company were tested in the laboratories of the Chinese company located in China.
• The necessary reports consequent to the test conducted on the bauxite samples were prepared in China and provided to the assessee from outside India.
• At the time of making the payment to the Chinese company, the assessee made an application under section 195 of the Income Tax Act, 1961 (the Act) for obtaining a nil withholding tax order from the Assessing Officer (“AO”).
• The assessee submitted that the fees to be paid to Chinese company is in the nature of business income and in the absence of any Permanent Establishment (“PE”) of the Chinese company in India in terms of India- China tax treaty (Tax Treaty), the said fee is not taxable in India.
• The AO held that the services rendered by the Chinese company were in the nature of Fee for Technical Services (“FTS”) under the provisions of the Act as well as under the Tax Treaty and accordingly liable to withholding of tax at the rate of 10% of the gross amount under the aforesaid Tax Treaty.

Issue Before the Tribunal